India invites bids from banks for ONGC share sale

MUMBAI (Reuters) - The government on Wednesday invited bids from investment banks to manage the sale of a 5 percent stake in state oil firm Oil and Natural Gas Corp , a deal that could raise as much as $3 billion.

The government, which has a 68.94 percent stake in ONGC, is considering divesting about 427.8 million shares through an auction, the finance ministry's divestment department said in a notice on its website.

Prime Minister Narendra Modi's government will decide next month on the sale, an official said on Tuesday, in a major test of whether he can follow through on reforms outlined in his first budget.

If completed, the sale could raise more than a quarter of the $10.5 billion target for asset sales announced by Finance Minister Arun Jaitley for the fiscal year through March 2015, to help bridge the budget deficit.

The government will appoint up to five investment banks to manage the offering and the last date for submitting bids is Aug. 6, said the divestment department notice.

ONGC shares have gained about 44 percent so far this year, on optimism about an impending hike in domestic gas prices and a reduced subsidy burden. A 5 percent stake in the company is valued at $2.96 billion at current market prices.

(Reporting by Aman Shah in Mumbai; Editing by Sumeet Chatterjee and David Holmes)